The IRS and Attorney-Client Privilege

An article in Forbes magazine discussed what it deemed “an age-old topic: what tax information can the IRS get?” According to the article, there has been a renewed interest in the topic, as taxpayers consider the dangers of undisclosed bank accounts and the benefits of voluntary disclosure.

While you cannot be forced to incriminate yourself under the Fifth Amendment, you can be forced to turn over documents, such as foreign bank account records. Using any number of court-backed requests—summons subpoenas or search warrants—the IRS can obtain the information that it is seeking.

It is a different story though, if the information and the documents are in the hands of a tax attorney. Protected by attorney-client privilege, the information is not subject to summons or subpoenas from the IRS. Not even a confession of the location of income or assets in offshore accounts to your attorney can be relayed to the IRS.

The article states that this information should impact in the way that the taxpayer handles his case. Any documents that the taxpayer receives from foreign bank accounts are “fair-game” for the IRS. On the other hand, if the tax attorney obtains the documents on behalf of the taxpayer, the documents will then fall under attorney-client privilege.

It is essential to note though, that accountants do not fall under the umbrella of attorney-client privilege. Although accountants received a statutory tax preparation privilege in the 1990s, the privilege does not extend to criminal cases. An accountant may be forced to divulge any information or documents that the IRS request if the matter is criminal.

There is a way that the taxpayer, the tax attorney, and the accountant can all be protected under attorney-client privilege—the Kovel letter. The letter, named after the case United States v. Kovel, presents a scenario in which the tax attorney hires an accountant to work for him on the taxpayer’s case. The key lies in “for him,” not for the taxpayer. The accountant is then acting a subcontractor to the tax attorney on the accounting for the taxpayer.

Unfortunately for taxpayers, the Kovel letter is not as relevant as it has been in the 50 years since the case was decided. The IRS has done a great deal to erode the principle; recent court victories are a testament to this fact.

The only way to obtain secure advice, away from the IRS, is to work with a tax attorney. It is there that attorney-client privilege is safe.


Segal, Cohen & Landis
9100 Wilshire Blvd. Ste. 601E
Beverly Hills, CA 90212
(310) 285-3999

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